Target: ₹4,063

CMP: ₹4,142.20

Britannia Industries Q2-FY23 result was above our estimates. Volume growth at 4-5 per cent year-on-year (8 per cent three-year-CAGR) despite grammage reduction is highly positive. The company took price hike of 7 per cent q-o-q vs 3 per cent q-o-q inflation in Q2-FY23. During the last seven quarters, it took price increase of 22.5 per cent vs 32 per cent inflation. Price hike of 18 per cent y-o-y undertaken in Q2-FY23 is enough to offset current inflation; the management expects palm, wheat and sugar price (65 per cent of total cost) to remain stable or cool off moderately.

Gross margin expanded 142 basis points y-o-y to 39 per cent due to softening of raw material prices. Consequently, EBITDA margin grew 77 bps y-o-y to 16.3 per cent. Adjusted PAT grew 29 per cent y-o-y to ₹500 crore.

New product development (NPD) constitutes 5 per cent of revenues; Biscafe, Potazos and Waffer business is likely to reach ₹100-crore run-rate, while Croissant would reach ₹150-crore annual-exit-run rate in FY23.

The company has got ₹1,000-crore loan at lower interest rate of 5.8 per cent, while treasury yield stood at 8.5 per cent. Inter-corporate deposits now stand at ₹590 crore (vs ₹740 crore in March 2022).

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